In response to environmental stimuli, leukocyte membrane remodelling generates biologically active lipids that can serve as both intra- and extracellular mediators. There are several classes of lipids that can mediate inflammatory reactions. We report here on a new intracellular lipid signal that regulates oxygen-radical formation in neutrophils, a key response in microbial killing, inflammation and tissue injury. Screening of neutrophil-derived extracts rich in phosphorylated, non-saponifiable lipids revealed a potent inhibitor of superoxide anion (O2-) production. Structural analysis of biologically active fractions gave four major phosphorylated lipids: most abundant was presqualene diphosphate (PSDP). Upon activation of neutrophil receptors, PSDP and its monophosphate form, presqualene monophosphate (PSMP), undergo rapid remodelling. At submicromolar concentrations, PSDP but not PSMP inhibit O2- production by human neutrophil cell-free oxidase preparations. We prepared PSDP and PSMP by total organic synthesis and matched both the physical properties and biological activity of the neutrophil-derived compounds. Our results indicate that PSDP, a recognized intermediate of cholesterol biosynthesis, is present in immune effector cells and is a potent regulator of the cellular response in host defence.